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Brexit uncertainty squeezes UK economy as service sector stagnates– business live – The Guardian, Theguardian.com

Brexit uncertainty squeezes UK economy as service sector stagnates– business live – The Guardian, Theguardian.com


McDonald’s CEO Steve Easterbrook.
McDonald’s CEO Steve Easterbrook. Photograph: Alyssa Schukar / AP

Steve Easterbrook, the chief executive officer of McDonald’s Corp who was dismissed over the weekend, has just quit from Walmart’s board as well.

Easterbook was forced out of the fast food chain after conducting a consensual relationship with an employee, which the board determined violated company policy.

He’s now decided to leave Walmart too, with the supermarket giant insisting it’s amicable, saying:

Easterbrook’s decision to resign was not due to any disagreement with the Company on any matter relating to its operations, policies or practices,

His departure wiped around $ 4bn off McDonald’s value yesterday, as investors took the news badly.

Easterbrook himself walks away with $ 675, 000 in severance pay, plus stock awards worth more than $ 37 M.

There’s not much market reaction tothe flatlining UK service sector.

Sterling is hovering around $ 1. 29 this morning, as traders keep to the sidelines while the general election campaign gears up.

Shares are still higher in London, with the FTSE 100 UP 20 points or 0.3% at 7390.

Mining stocks are among the risers, with Glencore up 2.5% and Rio Tinto gaining 1.3%. That reflecthopes of a US-China trade war breakthough this month, and optimism that the global economy will dodge a recession.

There are also encouraging signs in the bond market. The gap between the interest rate on longer and shorter-dated US debt has widened, suggesting the markets don’t seen an imminent recession.

Mike Bird(@ Birdyword)

We survived the recession of 2019, lads. It’s over, we won.https://t.co/yibMJr 40 Jo

November 5, 2019

(UK economy ends) with stagnation

Today’s PMI figuressuggest the UK is looking at a stagnant end to the year, says Melanie Baker, senior economist at Royal London Asset Management.

“A services PMI of 50 .0 is still weak by UK standards and a composite PMI at 50 .0 is cons istent with close to zero growth in the UK economy.

“Actual GDP growth is likely to be stronger than that in Q3 after decent monthly output figures earlier this summer.

“It is important to note the survey period was 11 – 29 th October, so the responses will largely have been received after the optimism generated from the Varadkar-Johnson meeting and subsequent progress towards a deal… but before MPs voted for a general election. ”

Andrew Wishardof (Capital Economics) predicts weak growth in the final quarter of 2019.

The recovery in the services PMI in October will allay fears that the largest sector of the economy is slipping into recession. Nonetheless, the survey suggests that the risks to our forecast that GDP growth will slow to 0.2% q / q in Q4 are to the downside.

Ed Conway, economics editor of Sky News, says October’s PMI surveys paint a ‘grim’ picture of the UK economy … but the overall picture could be a little brighter.

Ed Conway(@ EdConwaySky)

Grim tidings from the purchasing managers index this am. All sector PMI at 49 .5 in Oct. Up from Sept but, crucially, below 50, which implies a contraction. But NB these numbers aren’t always a good guide to official GDP growth, which is expected to be growing again in Q3pic.twitter.com/jZueZ0r5QM

November 5, 2019

BBC economics editor Faisal Islam agrees …. and points out that the official growth figures for Q3 2019 are released on Monday:

Faisal Islam(@ faisalislam)

October all sector PMI still weak: -ve for 3 months running for first time in decade – ordinarily consistent with small contraction – but rise is expected in Q3 (ie no technical recession following Q2 fall), partly on back of public spending, stockpiling etc

GDP figures out Monpic.twitter.com / t9StOzRewe

November 5, 2019

Sam Tombs of Pantheon Economics makes a similar point:

Samuel Tombs(@ samueltombs)

Your regular monthly reminder that the UK services PMI is a poor guide to the official GDP data:pic.twitter.com / dTDHXZoWHb

November 5, 2019

Brexit uncertainty is having a chilling impact on Britain’s economy, warns Duncan Brock, Group Director at the Chartered Institute of Procurement & Supply.

Here’s his take onToday Services PMI report.

“Without any real expectation for significant change in October, the sector stuttered and stalled delivering a lifeless set of results as new business from domestic and export markets dried up and orders fell for the second month in a row.

“In terms of staff hiring, this is one of the worst service sector performances since 2011, as job creation became job cutting for the fifth time this year. Even the impending October deadline was not enough to stem th e flow of hopelessness amongst service providers, as optimism remained at low levels.

“The sector’s main difficulties are largely of Brexit’s making and with another deadline comes more indecision and delay. Businesses are putting off their investments for happier times and consumers are saving their pennies in case rising costs have a more severe impact on their daily lives. Companies are waiting for a resolution by the UK Government to salvage the current situation so workflows can begin again at healthier levels. ”

UK private sector shrank in October

Britain’s private sector is suffering its longest contraction since the financial crisis.

That’s according to October’s surveys of purchasing managers, which suggest the UK economy could shrink by 0.1% this quarter.

Whilethe service sector stagnated, manufacturing shrank slightly (with a PMI of 49 .6) and construction had a poor month (with a PMI of just (**************************************************************************************************************************************************************************************************************************************************************************************************************************************************************************************************************************************************************************. 2).

That dragged the composite UK PMI below the 50 – point mark for the third month running, at49 .5,up from September’s48 .8.

This is the longest negative sequence for ten-and-a-half years and signalling a further contraction in total private sector output.

Chris Williamson,Chief Business Economist at (IHS Markit) , explains:

Contractions have now been recorded in four of the past five months, marking the worst spell since 2009 during the global financial crisis.

“The October reading is historically consistent with GDP declining at a quarterly rate of 0.1%, similar to the pace of contraction in GDP signalled by the surveys in the third quarter.

However, as economist Rupert Seggins points out, recent official GDP data has been more upbeat than the PMI surveys recently.

Rupert Seggins(@ Rupert_Seggins)

UK service sector PMI of 50 .0 in October indicating no change in output. All sector PMI is still slightly in contraction territory (49. 5) because of the sub – 50 readings for manufacturing & construction. Q3 PMIs had a bit of tension with official stats (sub – 50 vs 0.3% q / q in Aug).pic.twitter.com / psrDsuVMWV

(November 5,)

Some service sector companies have stopped hiring new staff, while others are actively laying people off.

Today’s services PMI report explains:

Fewer incoming new contracts and sharply falling backlogs led to another reduction in workforce numbers in October, the fifth in 2019 so far.

While firms mostly linked lower headcounts to the non-replacement of voluntary leavers, some compulsory redundancies were also reported. The overall rate of job shedding eased since September, however

Updated

UK service sector is stagnating as new work declines

A group of businesspeople working in the office
Photograph: PeopleImages / Getty Images

Newsflash: Britain’s dominant services sector stagnated last month, in another sign that the economy is subdued.

October’s UK services PMI, which tracks activity across the sector, has risen to50 0– the cut-off point between expansion and contraction.

That’s up from49 .5in September, and a little stronger than expected.

But the sector is still struggling, in the face of weak confidence and political uncertainty.

UK service sector PMI for October
UK service sector PMI for October Photograph: Markit

Service sector bosses reported that new business levels fell last month, leading to more job losses in the sector. New work has now declined seven times in the first ten months of 2019.

Many service companies blamed the ongoing deadlock over Britain’s exit from the EU.

Markit says:

The rate of [new business] contraction in the latest period was the fastest since April, but modest overall. Companies continued to link lower new work to uncertainty surrounding Brexit.

Uncertainty around Brexit also undermined international demand for UK-based services. New export business fell at a rate unchanged from September’s near-record pace.

Car sales have now fallen in eight of the first 10 months of 2019.

Mike Hawes, SMMT chief executive, says the market is suffering from waning confidence.

“The growth in alternatively fueled cars is very welcome, showing increasing buyer appetite for these new technologies.

The overall market remains tough, however, with October now the year eighth month of decline and in need of an injection of confidence. ”

UK consumers continue to shun diesel cars, with sales down (%) to 34, 666 vehicles) compared with October 2018.

Sales of petrol cars fell by 3.2%, but still made up the bulk of the market (with 89, (sold).

Hybrid electric car sales rose by 9%, to 7, 950. Battery electric vehicle registrations almost tripled, up 151 .8% to 3, 162 units.

UK car sales fall again

Newsflash: UK car sales have taken another tumble.

The Society of Motor Manufacturers and Traders reports that sales fell by 10, 348 last month to 143, 251, compared to 153, 599 in October 2018. That’s a 6.7% slide.

It was driven by a big drop in private purchases, suggesting consumers are nervous about making major purchases.

The SMMT blamed “a tough environment for businesses and consumers as economic and political uncertainty continued to impact confidence.”

So far this year, the new car market is down -2.9% compared with the first (months of) .

The SMMT explains:

The fall reflected continued uncertainty over diesel and clean air zones, stunted economic growth and uncertainty over Brexit.

Here’s the details:

  • UK new car registrations fall -6.7% in October, as consumer confidence remains weak.
  • Private demand sees significant drop, down – 13 .2%, while fleet demand remains stable.
  • Alternatively fueled vehicles reach record 9.9% market share with 14, 231 registered.
  • Year-to-date market down -2.9% with 58, 897 fewer cars registered than in October 2018.

More to follow ….

Updated

OPEC cuts oil demand forecasts

Just in: Opec, the cartel of oil-producing nations, has cut its forecast for demand in the coming years.

It now expects oil consumption in 2023 to be 103 .9 million barrels-per-day, down from 104 .5m bpd a year ago.

Opec also expects demand for its own crude to fall 7% by 2024, to 32 .8m bps from 35 m bpd this year – due to rising competition from the US shale industry.

Helen Robertson(@ HelenCRobertson)

OPEC has downgraded forecasts for the amount of its oil the world will need over the next few years, seeing a 7% slide by 2023.

Why? U.S. shale# OOTT

November 5, 2019

Helen Robertson(@ HelenCRobertson)

OPEC has downgraded forecasts for the amount of its oil the world will need over the next few years, seeing a 7% slide by 2023.

Why? U.S. shale# OOTT

November 5, 2019

Britain’s FTSE 100 has joined the rally, rising 19 points or 0. 25% to 7388.

Associated British Foods is the top riser ( 5%), thanks to a 4.2% jump in sales at its Primark discount fashion chain in the last year.

Primark’s profits rose by 8%, which made up for a sharp fall in profits on ABF’s sugar division (due to falling EU sugar prices and a poor crop in China).

President Macron demands end to US-China trade war

China’s President Xi Jinping (R) and French President Emmanuel Macron (L) make a toast as they visit France’s pavilion during the China International Import Expo today
China’s President Xi Jinping ( R) and French President Emmanuel Macron (L) make a toast as they visit France’s pavilion during the China International Import Expo today Photograph: Ludovic Marin / AFP via Getty Images

French president Emmanuel Macron has called for an end to the US-China trade war.

Speaking at the Shanghai trade expo, Macron warned that the dispute had affected the global economy, including the European Union.

“No-one wins” from a trade war, Macron warned sternly, adding that the dispute “only creates losers” and was weighing on global growth.

Carolynn Look(@ carolynnlook)

Lots of emphasis on reaching deals and making progress on EU-China cooperation ASAP in Macron’s speech. Much at stake for the European economy.

“Trade tensions have already hurt the global economy. We hope an agreement can be reached to ease the tensions. “

November 5, 2019

Macron appeared to criticize the US’s approach, saying “unilateral action, the use of tariffs as a weapon, (and) survival of the fittest” wasn’t the way forward.

But in an even-handed approach, he also called for Chine speed up the opening of its markets (as Xi pledged today).

Emmanuel Macron speaking in Shanghai today

Xi: We must knock down walls of protectionism

Chinese President Xi Jinping delivers a speech at the opening ceremony of the second China International Import Expo (CIIE) in Shanghai, China November 5, 2019. REUTERS/Aly Song
Chinese President Xi Jinping at the opening ceremony of the second China International Import Expo (CIIE) in Shanghai today Photograph: Aly Song / Reuters

President Xi Jinping has promised to crank the Chinese economy open to overseas companies, in a speech that also criticized protectionism.

Speaking at the opening of the China International Import Expo in Shanghai, Xi promised more market-opening steps were coming. He also pledged to reduce restrictions on foreign investment.

He told an audience at the trade show, including the leaders of France, Greece, Jamaica and Serbia.

“The door that China is opening will only open further and wider,”

The Expo is an opportunity for foreign companies to promote their goods, and help break into the Chinese market.

The Chinese leader also launched an attack on protectionism, saying:

[World leaders must] continue to knock down walls instead of building walls, resolutely oppose protectionism and unilateralism, (and) continuously reduce trade barriers. ”

That might have triggered some eye-rolling in the audience, as Beijing isn’t exactly averse to protectionism.A recent EU report found that China has most ‘problematic’ barriers to free trade than any other country

More gains in Asia

An electronic stock board of a securities firm in Tokyo, where Asian shares advanced after the Dow Jones Industrial Average returned to a record high.
An electronic stock board of a securities firm in Tokyo, where Asian shares advanced after the Dow Jones Industrial Average returned to a record high. Photograph: Koji Sasahara / AP

Trade optimism drove most Asia-Pacific markets higher today, following last night’s record highs in New York.

Tokyo led the charge, with the Nikkei index gaining 1.7%. Traders played catch-up after a Japanese holiday yesterday.

South Korea’s Kospi gained 0. 65%, to a six-month closing high.

China’s CSI 300 also strengthened, jumping 0.6%. That took the index over the 4, 000 point mark for the first time since April.

Introduction: US ‘considering rolling back tariffs’ on China

The US and China flags

Good morning, and welcome to our rolling coverage of the world economy, the financial markets, the eurozone and business.

Global stock markets are continuing to rally today, on hopes that Washington and Beijing will sign a preliminary trade deal this month.

Optimism is rising, thanks to reports that the two sides could roll back some tariffs, to get the much-anticipated Phase One trade deal over the line.

China has pushed for recent tariffs imposed by president Trump to be removed, and US officials are apparently taking the request seriously.

This would mean rolling back the latest curbs on Chinese imports, introduced in the autumn when the trade war last escalated.

(As the Financial Times explains) :

According to five people briefed on the discussions, the White House is considering rolling back levies on $ 112 bn of Chinese imports – including clothing, appliances, and flatscreen monitors – that were introduced at a 15 per cent rate on September 1.

The US move would meet a core demand from Beijing as negotiators from the world’s two largest economies work out the terms of a ceasefire to be signed in the coming weeks by Donald Trump and Xi Jinping.

FT Economics(@ fteconomics)

US considers dropping some tariffs on Chinahttps://t.co/sD9PCqQPJO

November 4, 2019

With Trump eager for a ‘success’ ahead of the presidential elections, the markets are anticipating a high-profile signing ceremony soon.

AsIpek OzkardeskayaofLondon Capital GroupExplains:

According to the latest news, the US is now debating whether to remove a part of tariffs imposed on Chinese imports on September 1st.

Such a charming move from the US would help breaking the ice between the two parties and pave the way towards a partial deal in the coming weeks. Or this is at least what investors are betting for.

However, China will have to give something in return. Pledging to buy more agricultural goods from American farmers is a start, but the US wants to see better protection for intellectual property too.

Asia-Pacific markets are rallying again today, hitting their highest levels in six months.

Last night, all three Wall Street indices closed at record highs for the first time since July, on optimism of a trade deal.

Trader works on the floor at the New York Stock Exchange last night
Trader works on the floor at the New York Stock Exchange last night Photograph: Brendan McDermid / Reuters

European markets hit a 21 – month high yesterday, and are expected to rise further today. Auto stocks – always vulnerable to trade jitters – had a strong day.

IGSquawk(@ IGSquawk)

European Opening Calls:# FTSE7405 0. 48%#DAX13160 0 . 18%#CAC5841 0. 28%#MIB23382 0. 30%# IBEX9431 0. 15%# STOXX3675 0. 27%# SA 4050705 0. 06%

November 5, 2019

But is the rally built on firm foundations, given global growth has slowed this year and many companies missed expectations or trimmed their outlook recently?

Valuations certainly look quite high at the moment.

As Paul Donovan of UBS Wealth Management puts it, there is ‘optimism unbound’ right now:

Equities are back to believing that all is for the best in this best of all possible worlds.

Also coming up today

We’ll find out how Britain’s services sector coped last month, in the run-up to the October 31 st Brexit deadline that never was. Economists predict a small drop in activity.

Yesterday, we learned that UK construction output dropped quite steeply, as uncertainty continues to bite.

America’s service sector is forecast to have done better, with a small rise in activity.

(The agenda)

  • 30 am GMT: UK service sector PMI for October- expected to rise to 49 7, from 49. 5, showing a small contraction
  • 1. 30 PM GMT: US trade balance for September– expected to rise to 51 .1, from 51 .0, showing modest growth
  • 3pm GMT: US service sector PMI for October

Updated

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